Worries about rising rates halt rally for stocks
NEW YORK/January 10, 2018(AP)(STL.News)— Climbing interest rates, and the fears about what they could mean for stocks, knocked U.S. indexes lower in morning trading on Wednesday. The Standard & Poor’s 500 was on pace for its first loss of the new year after pulling back modestly.
The pause for stocks came as Treasury yields continued their upward climb, and the 10-year yield reached its highest level since March.
KEEPING SCORE: The S&P 500 was down 10 points, or 0.4 percent, at 2,741, as of 10 a.m. Eastern time. It’s on pace to break its six-day winning streak, which was its longest to lead off a year since 2010.
The Dow Jones industrial average lost 69 points, or 0.3 percent, to 25,318, the Nasdaq composite fell 38, or 0.5 percent, to 7,125 and the Russell 2000 index of small-cap stocks dropped 5, or 0.4 percent, to 1,554.
RATE CONCERNS: Low-interest rates have been one of the main propellants for the stock market’s rise since the Great Recession. They make borrowing easier for companies and people, which greases the skids for the economy.
Low rates also make bonds less attractive investments, which in turn pushes investors from bonds into stocks.
Investors have long been preparing for a gradual increase in bond yields because the Federal Reserve is slowly raising short-term rates and pulling back from the bond purchases it made to aid the economy. But a sudden or sharp jump higher in rates could easily upset markets, which have been locked in remarkably calm conditions for more than a year.
RATE MOVES: The yield on the 10-year Treasury rose to 2.59 percent from 2.55 percent late Tuesday. At the start of the year, it was as low as 2.40 percent.
A report from Bloomberg News said that China is considering a slowdown or halt to its purchases of Treasurys, which helped push rates higher.
Investors are also speculating about whether Japan’s central bank will slow its bond purchases to keep rates low.
HARDEST HIT STOCKS: Companies that pay big dividends had the day’s biggest losses. They tend to move in the opposite direction of interest rates because higher bond yields can lure away investors seeking income.
Real-estate stocks fell 1.4 percent for the sharpest loss of the 11 sectors in the S&P 500. Utilities and telecoms, which also are big dividend payers, each fell close to 1 percent.
FINANCIALS, ENERGY HOLD STEADY: Higher interest rates can be a benefit for banks, allowing them to make bigger profits on loans. Financial stocks in the S&P 500 rose 0.6 percent.
The only other sector in the index to rise was energy, which climbed 0.2 percent. It benefited from higher prices for oil and gas.
Benchmark U.S. crude added 42 cents, or 0.7 percent, to $63.38 per barrel. Brent crude, the international standard, gained 23 cents to $69.04. Natural gas rose 5 cents, to $2.97 per 1,000 cubic feet.
CURRENCIES: The dollar fell to 111.54 Japanese yen from 112.61 yen late Tuesday. The euro rose to $11982 from $1.1933, and the British pound fell to $1.3511 from $1.3534.
COMMODITIES: Gold rose $4.00 to $1,317.70 per ounce, silver added 3 cents to $17.04 per ounce and copper gained 3 cents to $3.24 per pound.
MARKETS ABROAD: Japan’s Nikkei 225 index fell 0.3 percent, South Korea’s Kospi lost 0.4 percent and the Hang Seng in Hong Kong added 0.2 percent.
France’s CAC 40 fell 0.6 percent, the FTSE 100 in London added 0.1 percent and Germany’s DAX lost 1.1 percent.